IMF recommends economic reforms as LatAm growth loses steam

The IMF is recommending economic reforms across Latin America as growth in the region weakens. 

"Countries in the region must simultaneously tackle three major challenges: ensuring the sustainability of public finances; raising potential growth; and doing it in a manner that promotes social cohesion and addresses social inequities," IMF representatives Ilan Goldfajn, Anna Ivanova and Jorge Roldos wrote in a report.

"Addressing these challenges, which started even before the pandemic, will take time. Policymakers should start now to develop a comprehensive strategy for addressing them and building societal consensus around this strategy."

Latin America’s GDP grew at an estimated 6.8% last year, after a contraction of 6.9% in 2020 amid the effects of the pandemic.

However, the recovery of the economy is rapidly losing pace, as inflationary pressures force central banks to hike base rates.

The IMF is now projecting economic growth of 2.4% for Latin America in 2022, down from 3% previously.

"Latin America is facing serious problems with populism and political instability that are reflected in the economic environment," Alex Agostini (pictured), chief economist at Brazilian ratings agency Austin Rating, told BNamericas. 

Brazil, Latin America's largest economy, is expected to see its GDP expand just 0.3% this year, according to the IMF.

In 2020, Brazil was one of the countries in the region that suffered the least from the effects of the pandemic, as the government used several fiscal mechanisms to mitigate the economic recession, but now options are more limited to foster growth.

"Brazil will be an anchor for the economy of all Latin America this year and the room for necessary reforms, such as tax reform, will not be there, since 2022 is an election year and congress tends not tend to evaluate measures that are not very popular in election years," said Agostini.